Arab Today, arab today finding a dynamic balance
Last Updated : GMT 04:33:33
Arab Today, arab today
Arab Today, arab today

Finding a dynamic balance

Arab Today, arab today

Arab Today, arab today Finding a dynamic balance

Beijing - XINHUA

Investment structure needs changes as quickly as possible to meet the consumption demand created by urbanization Will China\'s economic growth in the next five to 10 years be driven mainly by investment or consumption? Maintaining a rational investment rate is necessary because China is still in the process of rapid economic transition and development. The problem is that the lingering high investment rate and the over-expansion of investment have led to a serious imbalance between investment and consumption. In order to adapt to the changes in consumption demand resulting from the country\'s ongoing urbanization, it is imperative to transform investment. The next 10 years will be a crucial period for China\'s transformation and development, and releasing consumption demand is the most important economic and structural readjustment. This requires mobilizing private capital so the government can invest more in public services. Consumption not only drives economic growth and creates investment opportunities, it also leads to optimization of the investment structure. But in the short term, consumption is a slow variable and investment is more important in stabilizing growth. In the medium and long term, however, consumption is the ultimate purpose of investment. Only when investment is turned into consumption, can it be regarded as being effective and become a driving force for growth, especially as the prolonged investment-driven growth is unsustainable because the low-cost expansion period and demographic dividend are coming to an end. Although investment without the support of consumption has a role in stabilizing short-term growth, it will most likely create more obstacles to growth and lead to a distorted industrial structure, reduced marginal efficiency of investment and overproduction. The key to accelerating investment transformation is to achieve a dynamic balance between investment and consumption in order to enable investment growth to reflect urbanization and the structural changes in aggregate demand of society. So it is necessary to change the investment structure as quickly as possible to meet the changes in consumption demand. First, investment in public projects has to be increased. In order to adapt to the rapidly growing demand for public goods, investment in education, healthcare and social security should be markedly increased. This will substantially increase people\'s propensity to consume and effectively reduce the disparity between urban and rural areas. The second priority is to increase investment in the provision of public goods and services, because, due to the lagging readjustment of the industrial structure, much of the growing consumption demand cannot be satisfied. For example, in the next five years, the added value of China\'s cultural industry is expected to rise from 3 percent of gross domestic product to 5 percent. If investment in the cultural industry is increased, it will not only change the potential demand into actual demand, but also lead to an upgrading of the industrial structure. Under market economic conditions, the sustainability of investment depends on whether private capital can provide a greater share of investment. Only when private capital is the main investor can there be economic vitality. The current problem is that investment by the government and State-owned enterprises has been growing too fast while investment by private enterprises has been too small. Therefore, the precondition for stabilizing economic growth is to stabilize the confidence of private enterprises in investment. Though investment by private enterprises has started to grow, the difficulties they face in entering public and monopolistic sectors have not yet been eased. In fact, the development of private sector investment is not only blocked by a policy \"glass door\", there is also the barrier of a vested-interests glass door. Without substantial breakthroughs in reforming monopolistic sectors, it will remain very difficult for private enterprises to enter them. Investment transformation raises new requirements for the allocation of State-owned capital. It should be recognized that State-owned investment deserves the credit for building up China\'s economy. Nevertheless, if the situation of State-owned capital operating in too many competitive sectors is not changed, it will be very difficult to stimulate the vitality of private capital. Allocating State-owned capital mainly to sectors of public interest to create space for private capital is essential to adapt to the upgrading of the structure of society\'s aggregate demand at time when there is a shortage of public services. It is also an important measure to prevent capital outflow and to shore up the confidence of private capital in investment. Therefore, allocation of State-owned capital should focus on public welfare. State-owned capital should gradually exit from general competitive sectors and should be allocated to public welfare and strategic emerging industries that will determine medium- and long-term growth of the national economy, such as energy, resources and high-tech industries. For State-owned capital to be retained in other competitive sectors, the dividend paid to the State must be raised and then invested in social development and public welfare in order to create favorable conditions for urbanization. The author is president of the China Institute for Reform and Development.

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Arab Today, arab today finding a dynamic balance Arab Today, arab today finding a dynamic balance

 



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